CHAPTER 19 ACCOUNTING FOR INCOME TAX

Problem 19-1
Hilton Company reported pre-tax financial income of P6,200,000 for the current year. Included in other income
was P200,000 of interest revenue from government bonds held by the entity. The income statement included
depreciation expense of P500,000 for a machine with cost of P3,000,000. The income tax return reported
P600,000 as depreciation on the machine. The enacted tax rate is 30% for the current year and future years.
What is the current tax expense for the current year?
a. 1,860,000
b. 1,800,000
c. 1,770,000
d. 1,830,000
Answer: C

Problem 19-2
Tantrum Company began operations at the beginning of the current year. At the end of the first year of
operations, the entity reported P6,000,000 income before income tax in the income statement but only
P5,100,000 taxable income in the tax return. Analysis of the P900,000 difference revealed that P500,000 was a
permanent difference and P400,000 was a temporary tax liability difference related to a current asset. The
enacted tax rate for the current year and future years is 30%.
What is the total income tax expense to be reported in the income statement for the current year?
a. 1,800,000
b. 1,530,000
c. 1,650,000
d. 1,950,000
Answer: C

Problem 19-3
In 2015, Tiger Company reported pre-tax financial income of P5,000,000. Included in the pre-tax financial
income are P900,000 of non-taxable life insurance proceeds received as a result of the death of an officer,
P1,200,000 of estimated warranty expense accrued on December 31, 2015, and P200,000 of life insurance
premiums for a policy of an officer. No income tax was previously paid during the year and the income tax rate is
30%.
What is the income tax payable on December 31, 2015?
a. 1,500,000
b. 1,230,000
c. 1,290,000
d. 1,650,000
Answer: D

Problem 19-4
Viking Company reported in the income statement for the year ended December 31, 2015 pre-tax income of
P1,000,000.
Tax Return Accounting Record
Rent Income 70,000 120,000
Depreciation 280,000 220,000
Premiums on Officers’ Life Insurance 90,000
Income Tax Rate 30%
What is the current provision for income tax for 2015?
a. 360,000
b. 300,000
c. 294,000
d. 327,000
Answer: C

Problem 19-5
Pine Company reported pre-tax financial income of P800,000 for the year ended December 31, 2015. In the
computation of income taxes, the following data were considered:
Nontaxable gain 350,000
Depreciation deducted for tax purposes in excess of depreciation deducted for book purposes 50,000
Estimated tax payment in 2015 70,000
Enacted tax rate 30%
What is the total income tax expense?
a. 120,000
b. 135,000
c. 240,000
d. 95,000
Answer: B

Problem 19-6
Huskie Company reported in the income statement for the current year pre-tax income of P400,000. The
following items are treated differently per tax return and per book:
Tax Return Book
Royalty Income 20,000 40,000
Depreciation Expense 125,000 100,000
Payment of a Penalty None 15,000
Income Tax Rate 30%
What is the total tax expense?
a. 120,000
b. 124,500
c. 115,500
d. 117,000
Answer: B

Problem 19-7
During the current year, Everlasting Co. reported accounting income of P9,000,000 before income tax. The entity
revealed the following information for the current year:
Interest income on government bonds 700,000
Depreciaton claimed on tax return in excess of depreciation per book 1,300,000
Warranty expense on the accrual basis 600,000
Actual warranty payment 300,000
Income from installment sale reported for tax purposes in excess of income recognized per book 200,000
Income tax rate 30%
What is the current liability at year-end?
a. 2,700,000
b. 2,250,000
c. 2,490,000
d. 2,130,000
Answer: B

Problem 19-8
Canterbury Co. made an accounting profit of P4,000,000 for the current year which included the following items
of income and expense:
Donation to political parties (non-deductible) 1,000,000
Depreciation – 20% 1,600,000
Annual leave expense 700,000
Rent revenue 1,200,000
Income tax rate 30%
For tax purposes, the depreciation rate is 25%, the annual leave paid is P800,000 and the rent received is
P1,000,000. The entity followed the cash basis for tax purposes.
What is the current tax liability at year-end?
a. 1,200,000
b. 1,290,000
c. 1,368,500
d. 1,150,000
Answer: B

Problem 19-9
Aris Co. computed a pretax accounting income of P5,000,000 for the first year of operations.
Non-deductible expenses 200,000
Nontaxable revenue 500,000
Gross income on installment sales reported in accounting income but not in taxable income 1,000,000
Provision for doubtful accounts 100,000
Income tax rate 30%
What is the current tax expense?
a. 1,140,000
b. 1,410,000
c. 1,500,000
d. 1,110,000
Answer: A

Problem 19-10
Herbie Co. had cumulative taxable temporary differences on December 31,2015 and December 31,2014 of
P1,350,000and P960,000, respectively. The tax rate for 2015 is 40%while the tax rate for future years is 30%.
Taxable income for 2015 is P2,400,000 and there are no permanent differences.
What is the pretax financial income for 2015?
a. 3,750,000
b. 2,790,000
c. 2,010,000
d. 1,050,000
Answer: B

Problem 19-11
Dann Co. reported in the income statement for the current year P900,000 income before provision for income
tax.
Rent received in advance 150,000
Interest income on time deposit 200,000
Depreciation deducted for income tax purposes in excess of financial depreciation 100,000
Income tax rate 30%
What is the current provision for income tax for the current year?
a. 270,000
b. 225,000
c. 210,000
d. 255,000
Answer: B

Problem 19-12
Cascade Co. is determining the amount of the pretax accounting income for the current year by making
adjustment is taxable income from the income tax return. The tax return showed taxable income of P4,000,000
which a tax liability of P1,200,000has been recognized.
The entity provided the following items that may be required to determine pretax accounting income from the
amount of taxable income:
 Accelerated depreciation for income tax purposes was P500,000. Straight line financial depreciation on
these assets is P400,000.
 Goodwill impairment loss of P300,000was not included as a deduction in the tax return but may be
deducted in the income statement.
 Interest income on treasury bills was not included in the tax return. During the year, P600,000 was
received on these investments.
What is the pretax accounting income for the current year?
a. 4,100,000
b. 4,200,000
c. 4,300,000
d. 4,400,000
Answer: D

Problem 19-13
On January 1 ,2015, Midland Co. purchased a machine for P1,400,000. This machine has a 5-year useful life, a
residual value of P200,000 and is depreciated using the straight line method for financial statement purposes.
For tax purposes, depreciation was P500,000 for 2015 and P400,000 for 2016. The 2016 income before tax and
depreciation was P2,000,000 and the tax rate was 30%. The entity made estimated tax payment of P200,000
during 2016.
What is the income tax payable on December 31, 2016?
a. 480,000
b. 280,000
c. 450,000
d. 250,000
Answer: B

Problem 19-14
Punk Co. reported the following partial income statement after the first year of operations:
Income before income tax 3,750,000
Income tax expense
Current 1,035,000
Deferred 90,000 1,125,000
Net income 2,625,000
The entity used the straight line method of depreciation for financial reporting purposes and accelerated
depreciation for tax purposes. The amount charged to depreciation expense per book was P1,500,000. No other
differences existed between book income and taxable income except for the amount of depreciation. The
income tax rate is 30%.
What amount was deducted for depreciation in the tax return for the current year?
a. 1,200,000
b. 1,425,000
c. 1,500,000
d. 1,800,000
Answer: D

Problem 19-15
Jusco Co. is in the first year of operations. The entity reported pretax accounting income of P4,000,000 and
provided the following items:
Premium on life insurance of key officer 100,000
Depreciation on tax return in excess of book depreciation 120,000
Interest on municipal bonds 53,000
Warranty expense 40,000
Bad debt expense 33,000
Beginning balance in allowance for uncollectible accounts 0
Ending balance in allowance for uncollectible accounts 8,000
Rent received in advance that will be recognized evenly over the next three years 240,000
What is the taxable income for the first year?
a. 4,182,000
b. 4,102,000
c. 4,047,000
d. 4,082,000
Answer: A